Being Without a Job Doesn’t Always Make You Unemployed

Just because someone isn’t working doesn’t mean he or she is unemployed.

Just in time for Friday’s employment report, a podcast from the Federal Reserve Bank of St. Louis explains the nuances of unemployment.

Reuters

The Labor Department follows strict criteria in deciding who ends up in the jobless rate. The definition of unemployed is someone 16 years or older who does not have a job, has actively looked for work in the prior four weeks and is available for work. (Take our quiz to see if you can see who counts as unemployed.)

A recent graduate without a job who checks help-wanted websites every day would be considered “unemployed.” A woman who chooses to stay home with her children wouldn’t be. She would be considered “out of the labor force.”

The podcast also explains the three types of unemployment: frictional, cyclical and structural.

Frictional unemployment covers the time it takes for someone to find a job. Cyclical unemployment is the result of an economic slowdown. Structural unemployment results from a skills or geographic mismatch between workers and employers.

The Federal Reserve has pinned its policy moves partly on the improvement in the labor markets. In particular, the Fed’s policy statement has said the “exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6.5%.”

But as the jobless rate declines from its October reading of 7.3%, expect Fed officials to discuss what is driving the decline and what the rate is saying about the economy.

Central bankers would not welcome a drop in the jobless rate if it reflects more people falling out of the labor force. The Fed may not think such a decline signals improvement in the labor markets.

Policymakers may also feel frustrated if a greater share of the unemployed are people who have been jobless for an extended period of time. That would signal the U.S. is dealing with a large number of structurally unemployed. Some officials have suggested monetary policy is poorly equipped to deal with structural joblessness.

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